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Sunday, April 26, 2009

Free lunch - Bogus models used to justify CO2 limitation

Few things are more appealing in politics than something for nothing.
As Congress begins considering anti-global-warming legislation, environmentalists hold out precisely that tantalizing prospect: We can conquer global warming at virtually no cost.
Robert Samuelson at Newsweek
Here's a typical claim from the Environmental Defense Fund: "For about a dime a day (per person), we can solve climate change, invest in a clean energy future and save billions in imported oil."
This sounds too good to be true, because it is. About four-fifths of the world's and America's energy comes from fossil fuels — oil, coal, natural gas — which are also the largest source of man-made carbon dioxide, the main greenhouse gas.
The goal is to eliminate fossil fuels or suppress their CO2. The bill now being considered in the House would mandate a 42% decline in greenhouse emissions by 2030 from 2005 levels and an 83% drop by 2050.
Re-engineering the world energy system seems an almost impossible undertaking. Just consider America's energy needs in 2030, as estimated by the Energy Information Administration.
Compared with 2007, the U.S. is projected to have almost 25% more people (375 million), an economy about 70% larger ($20 trillion) and 27% more light-duty vehicles (294 million). Energy demand will be strong.
But the EIA also assumes greater conservation and use of renewables. From 2007 to 2030, solar power grows 18 times, wind six times. New cars and light trucks get 50% better gas mileage. Light bulbs and washing machines become more efficient. Higher energy prices discourage use; by 2030, oil is $130 a barrel in today's dollars.
For all that, U.S. CO2 emissions in 2030 are projected at 6.2 billion metric tons, 4% higher than in 2007. As an example, solar and wind together would still supply only about 5% of electricity, because they expand from a tiny base.
To comply with the House bill, CO2 emissions would have to be about 3.5 billion tons. The claims of the EDF and other environmentalists that this reduction can occur cheaply rely on economic simulations by "general equilibrium" models.
An Environmental Protection Agency study put the cost as low as $98 per household a year, because high energy prices are partly offset by government rebates. With 2.5 people in the average household, that's roughly 11 cents a day per person.
The trouble is that these models embody wildly unrealistic assumptions: there are no business cycles; the economy is always at "full employment"; strong growth is assumed, based on past growth rates; the economy automatically accommodates major changes — if fossil fuel prices rise (as they would under anti-global warming laws), consumers quickly use less and new supplies of "clean energy" magically materialize.
There's no problem and costs are low, because the models say so. But the real world, of course, is different.